DigitalGlobe, GeoEye Combine to Form Single Satellite Imagery Provider

25 Jul, 2012 By: Cyrena Respini-Irwin

As competitors become comrades, the already small number of commercial satellite operators shrinks further.

On Monday, two of the largest satellite imagery companies in the world announced that they will become one: DigitalGlobe will purchase GeoEye in a stock and cash transaction valued at approximately $900 million. The merger is expected to close late in the fourth quarter of this year or early in 2013. The combined company will keep the DigitalGlobe name, and Jeffrey Tarr, DigitalGlobe's current president and CEO, will continue in those roles.

The announcement concludes a series of acquisition offers from both parties that began in February. The buyout battle gained urgency from proposed budget cuts that will affect the Pentagon's EnhancedView imagery program, threatening federal contracts that are an essential source of revenue for GeoEye and DigitalGlobe.

Tarr expects the merger to have a beneficial impact on the company's scale and diversification. "We'll be more diversified than traditional defense-sector players," said Tarr during a conference call held Monday to discuss the transaction. "The combined business will be more diversified than either company is today," he said, earning roughly half its revenue from customers outside the U.S. government.

DigitalGlobe's satellite imagery has diverse uses, including disaster monitoring. Google has incorporated imagery of Colorado's Waldo Canyon Fire (above) into its Crisis Map so citizens and disaster management personnel can check on the status of neighborhoods and homes. Image (c) 2012 DigitalGlobe, Inc.

"This is a defining moment in the history of both DigitalGlobe and GeoEye, and a giant leap forward for our industry and our many stakeholders," said Tarr. GeoEye shareowners will receive 1.137 shares and $4.10 cash for each share of GeoEye stock, or they can opt for an all-cash or all-stock transaction, Tarr explained. Based upon the closing prices of DigitalGlobe and GeoEye as of July 20, 2012, the transaction delivers a premium of 34% to GeoEye's July 20, 2012 closing price of $15.17 per share. Upon completion of the transaction, DigitalGlobe shareowners are expected to own approximately 64% of the combined company, and GeoEye shareowners are expected to own approximately 36%.

"Share owners of both companies will benefit from significant expected synergies," said Tarr, noting that the net present value of future savings is valued at more than $1.5 billion. The majority of that savings will come from a more efficient capital footprint, as the two companies combine their satellite constellations (for a total of five in operation and two in construction) and ground infrastructure.

The combined company intends to complete construction of the GeoEye-2 and World View-3 satellites and launch one in 2013 or 2014, keeping the other as a spare. "We believe the current capacity of both constellations, plus one new satellite, should be sufficient for several years," said Tarr. Keeping one satellite in reserve will enable the company to quickly respond to technical problems in the constellation, or an unforeseen increase in demand. The company's long-term goal is to maintain a three-satellite constellation.

Other benefits of the merger, said Tarr, include integrated access to the company's extensive image archive, yielding efficiencies for all customers. He also cited new solutions available as a result of applying GeoEye's analytic capabilities to imagery from a variety of sensors, including panchromatic, multispectral, 8-band, and short-wave infrared. "We're very excited about the combination because it will, we think, speed the development of new products and services," said Matt O'Connell, CEO and president of GeoEye.

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